Natural Gas Rises on Shrinking Surplus Surplus to years past has come down from more than 50% in just three months By TIMOTHY PUKO Updated July 8, 2016 5:05 p.m. ET
Natural-gas prices inched higher Friday on signs a record surplus continues to ease. Natural gas for August delivery settled up 2.4 cents, or 0.9%, at $2.801 a million British thermal units on the New York Mercantile Exchange, the highest settlement since May 2015. It did snap a five-week winning streak, losing 18.6 cents, or 6.2% for the week. But the market stabilized after posting all of those losses in one session Tuesday. Friday’s climb came largely from data the U.S. Energy Information Administration released Thursday, an analyst and trader said. It showed inventories as of July 1 totaled 3.2 trillion cubic feet, 20% above levels from a year ago and 23% above the five-year average for the same week. While those inventories still could challenge a record high going into the winter, the surplus compared to years past has come down from more than 50% in just three months. “This dynamic of surplus reduction is a more important price motivator than the static factor of a large supply overhang,” Jim Ritterbusch, president of energyadvisory firm Ritterbusch & Associates, said in a note. The gas market is “gradually developing a base for a renewed price advance.”
UBS analysts on Thursday said stockpiles were refilling so much slower than expected that they reduced their estimate for storage levels to start the winter to 3.9 trillion cubic feet from 4 trillion. That led them to raise their price forecasts for the second half of the year. Third-quarter prices are likely to be $2.80/mmBtu, up from its previous estimate of $2.25, and fourth-quarter prices will be $3.00/mmBtu, up from $2.60, UBS said. “The upward revision is due to better-than-expected demand, which has been driven by...hot weather and increased coal-to-gas fuel switching from low prices,” it added. Natural-gas demand grew in the late spring and early summer as power generators burned more gas because of hot weather, high demand for air conditioning and lower-than-expected output from nuclear, wind and hydropower units, according to analysts. The summer heat is still playing a role in boosting gas prices, said Kent Bayazitoglu, analyst at the energy-consulting firm Gelber & Associates in Houston. Pipeline models show the country on Thursday hit its yearly high for gasfired power demand and prices could climb toward $3/mmBtu again if the hottest weather forecasts for mid-July prove correct and keep demand high, he added. FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED IN THE PRICE OF THE UNDERLYING FUTURES.